Sweden launches PE Code of Conduct

The Swedish Private Equity & Venture Capital Association has officially launched its Code of Conduct and Supervisory Board in a bid to strengthen confidence in private equity firms as company owners and counter the negative image the industry has battled with in recent years.

As part of the Code, published Wednesday, a three-man supervisory board has been set-up to review and assess whether GPs have acted as a responsible owner.

Hans-Gunnar Axberger, former parliamentary ombudsman and press ombudsman, has been named chairman of the supervisory board. Björn Börjesson, vice chairman of the Third Swedish National Pension Fund and Agneta Dreber, chairman of Stockholm Health Care Services, Stockholm County Council, have also been appointed to the board. They cannot be dismissed, according to a statement.

The Code content highlights the industry´s societal responsibilities and the transparency requirements this entails. It orders GPs for instance to have a website containing contact information and information on the ownership of the firm that is kept up to date. “Inquiries from mass media and the public shall ordinarily receive [a] prompt response,” the Code also states.

The Code also urges GPs to behave ethically when it comes to their tax affairs. “Like all other companies, private equity firms have a legitimate interest in not paying more in taxes than the tax legislation requires, but it is not consistent with the spirit of the Code to organize the business in a way that serves no other purpose than seeking to avoid taxation,” the Code states. However, because the Code of Conduct doesn’t have any legal powers, it “assumes that tax issues will be tested in ordinary tax lawsuits.”

Nevertheless, a private equity firm should strive for openness when it is questioned about its tax affairs, the Code states. If for instance a private equity firm´s tax arrangement is challenged by the Swedish Tax Authority, “the firm should be prepared to disclose to the public which considerations were made and why the path chosen was chosen”, according to the Code. “It damages confidence in the industry as a whole if a private equity firm whose tax return has been challenged evades discussion about it, for example by referring to legal proceedings and otherwise ‘putting a lid on it.’”

Whenever there’s a complaint to the board – which can be made by anyone – the board will determine whether a private equity firm has acted as a responsible owner. The board can also give GPs warnings, or in extreme cases recommend that the firm should be expelled from the SVCA, a final decision of which would be decided by the board of SVCA. “We can’t put people in jail and we cannot give out fines, but we can ‘name and shame’ them,” Gabriel Urwitz, chairman of the SVCA and managing partner of Segulah, said last month.

The Code was created following a number of incidents involving private investments in Sweden which attracted negative press coverage, such as KKR’s and Triton’s investment in elderly care home group Carema. In November 2011, the firms came under fire after Carema was accused of neglecting patients and criticized for its tax and remuneration practices – with left-wing Swedish politicians subsequently calling for a ban on private investments in welfare sectors. 

“Private equity has become such an important part of the Swedish economy and therefore the general public has the right to know more about us – as company owners, especially when it comes to companies in the well-fare sector,” Urwitz said. 

Swedish private equity turns over SEK 300 billion (€32 billion, $36 billion) annually, has ownership of more than 800 companies consisting of approximately 200,000 employees in Sweden, according to SVCA.